Two segments of patients require some form of subsidy or assistance in accessing prescription drugs or other treatments. Drug manufacturers assist indigent, uninsured patients typically by providing them with free drug. They assist low income (but not necessarily indigent), under-insured patients indirectly through drug discounts in one form or another. In the case of Medicare and Medicaid patients, anti-kick back statutes and civil monetary penalties can be implicated if these programs are not properly structured. The Office of Inspector General (OIG) is the branch of the United States government charged with oversight over such matters.
Medicare launched the Part D prescription drug plan (PDP) on Jan. 1, 2006. Up to thirty million Americans were anticipated to sign up for Part D coverage by the end of 2006, and likely more later. The Part D prescription drug plan is designed to encourage patients to seek out lower cost drugs and therapeutic alternatives. The program typically requires the patient to cover the first $250 of prescription drug costs themselves, pays 75% of the amount thereafter up to $2,250, after which there is no coverage or a “donut hole” until the patient reaches $5,100 in total drug costs, after which they pay only 5% in co-pay. In addition, the patients must pay a monthly premium of $25-40, depending on their specific plan. The plan itself is offered by participating private insurers who in turn are subsidized by Medicare. Patients must sign up for Part D coverage by May 1, 2006 or risk paying higher premium (e.g, which could escalate by 1% per month). For patients on high cost drugs, the co-pay and premium can exceed $4,000 per year, which for lower income families can represent a life-transforming burden (the average US household has about $45,000 of annual income spread across 2.6 family members). Likewise, some patients with Part B coverage also face a 20% co-pay on their treatments.
Historically, the pharmaceutical industry supported many of the Medicare underinsured with free drugs as a stop-gap measure, knowing that a prescription drug benefit was coming. Now, that the Part D program is operational, many drug manufacturers have announced their intention to end these free drug programs for Medicare patients past May when the Part D enrollment period comes to an end (although the deadline can be extended). Under the donut hole coverage structure, many patients that currently receive drug for free under such programs face out-of-pocket costs as high as $4,000 per year (e.g. for a biologic drug that costs $15,000/year). Drug manufacturers have offered to discount these drugs, but are wary of running afoul of the anti-kickback statutes. To summarize, the relevant statutes include:
1. Civil Monetary Penalties (CMP) provision (Social Security Act §1128A (a)(5)): Civil statute prohibiting the giving of something of value to Medicare or Medicaid patients that the donor knows, or should know, is likely to influence the patient's selection of a particular provider or supplier of any item payable by Medicare or Medicaid.
2. Anti-kickback statute (Social Security Act §1128B(b)): Criminal statute prohibiting the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals of items or services payable by a Federal health care program. Remuneration includes transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The “one purpose test” is relevant, i.e. if you do 15 things that are all good but one that violates the anti-kickback statues, then you are liable. Statute applies to parties on both sides of the transaction.
Currently, pharmaceutical drug manufacturers are allowed to assist Medicare Part D patients through cash donations to bona fide independent charities. There are five OIG mandated requirements that apply to such arrangements: (1) the manufacturer can have no influence or control over the program, (2) the assistance is awarded in a truly independent manner (i.e., no link between a manufacturer's donation and beneficiary's receipt of assistance), (3) the assistance is awarded without regard to the manufacturer's interests or beneficiary's choice of provider (i.e. which doctor or pharmacy), (4) the assistance is awarded based on reasonable, verifiable, and uniform measures of financial need, and (5) there is no data exchange that allows a manufacturer to correlate its donations to the number of prescriptions subsidized by the charity. Contributions can be limited to specific disease states, but not so narrowly that only one of many available brands qualifies. Product contributions (in lieu of cash), while eligible for TrOOP (patient's True Out Of Pocket Costs or co-pay) per CMS, are problematic since they can create a direct correlation between the donation and the use of the product, particularly if that one brand is the only option offered by the charity.
There are a number of foundations that assist under-insured patients with out-of-pocket costs. They include Patient Services Inc. (PSI), Patient Advocate Foundation, Chronic Disease Fund, National Organization for Rare Disorders, Patient Access Network Foundation (PANF) and the Healthwell Foundation.
The independent charity model offers many benefits and helps to address a number of concerns around the Civil Monetary Provisions (CMP) and the Anti-Kickback (AK) statutes. However, over the few years, a number of limitations of this model have become evident.
Drug manufacturers are reluctant to contribute funds given the strong possibility of subsidizing direct non-generic competitors: Drug manufacturers are willing to assist under-insured patients by discounting their drugs substantially in some form or fashion, while still retaining a positive contribution margin. This is different from programs directed at the uninsured, where the manufacturers give away free drug effectively at a loss up to the limits of their charitable budgets and means. Currently, a foundation must assist patients without regard to the brand of drug prescribed, including generics. This ensures that a physician's treatment choice is not biased towards brands that provide assistance, but is instead determined solely based on medical need. Also, in this way generic drugs, which provide an important policy lever for reigning in health costs, are not disadvantaged even when they choose not to participate in such subsidy/discount arrangements.
While many pharmaceutical companies are prepared to let generics compete on equal footing relative to assistance, they are unwilling to fund other direct competitors that offer drugs no different from theirs relative to price or efficacy. In fact, as shown in the following analysis, unless a manufacturer were certain that each player in the industry was doing its share, not only is the cost of assistance high but, worse, the benefits can accrue to their arch enemy or to free riders. In these cases, the system creates an incentive for the manufacturer to try to game the system in some manner to ensure that, in fact, its brand captures the majority of the subsidized prescriptions. In other cases, it dissuades many pharmaceutical companies from stepping up their contributions to support the underinsured.
Most drug manufacturers support one foundation—often one that is different from the one supported by their direct competitor. FIG. 1 shows economics of a drug manufacturer supported foundation assuming their brand has a 30% market share of new patients. This case study uses numbers fairly typical for manufacturers of biologic drugs. The analysis shows that the sponsoring manufacturer suffers a net contribution loss of $1,906 per patient. But worse still, the donor contributes $8,400 (i.e., $12,000-$3,600) in revenues per acquired patient to the competitors. Some of this would be obviously compensated back in the form subsidies from the competitor's foundation. However, to be certain of that, a drug manufacturer would have to assume that the competitor favored foundation was not gaming the system in some manner. As we know from the theory of economics, in any highly competitive industry, such indirect collusion is highly unlikely.
It was OIG's intent to create a system that does not disadvantage generic and low cost therapies, but not one where smaller share competitors are disadvantaged or that any drug manufacturer is in the uncomfortable position of helping competitors that deliver no cost benefit to the Medicare system. FIG. 2 shows that larger share competitors have greater certainty of positive contribution, for a typical manufacturer with the economic structure shown in Exhibit 1. Conversely, new market entrants, that by definition have low share, face the highest penalties in participating in foundation based programs to assist the underinsured. Once new patient market share (or in other words the share of manufacturer funding that goes towards their own brand), exceeds 50%, the foundation model becomes unconditionally viable. In even markets with modest competition, 50% or greater shares are unlikely.
The separation between the foundation and the drug manufacturer is not robust since the economic interests of the foundations and the donor are nearly completely aligned: The primary source of funding for most of the current foundations is a single pharmaceutical company per disease state. However, as discussed above, the pharmaceutical companies would be unwilling to contribute without some level of assurance that the majority, though not necessarily all of their funding, is going towards their own drugs. Hence, there is a built-in economic incentive for a foundation to “whisper in” some assurances to the manufacturer about their share of the funding in order to curry the favor of the donor and obtain increased funding.
In fact, some of the leading foundations (and their initial board member appointments) have been set up by reimbursement companies that do significant business with both the foundations they have set up and the Pharmaceutical companies. Further, there is no oversight mechanism over the foundations to ensure that no gaming goes on. Since eligibility criteria are set and interpreted by the foundations individually, without external audits, there can also be sufficient latitude to game the system in a variety of ways.
Poor patient experience, inefficiency and hence added cost in the system: Currently, it makes sense for a patient to apply to as many foundations as possible (in some cases as many as three to seven) since she cannot be sure which ones actually have funds, will approve her application, and for what amount. Each foundation has its own application process and eligibility requirements. For elderly patients, already burdened by the complexity of Part D plan choices, this is yet another daunting challenge.
The lack of uniform eligibility criteria runs counter to the OIGs desire for increased consistency and objectivity in the approval of all applications. Finally, since multiple foundations are processing applications independently for each patient, there are needless costs to the system as a whole, which ultimately detracts funds available for patients.
Further, since the foundations compete with each other for patients, there is an incentive for each foundation to make a more generous offer than the other, provided they have funding. As each foundation has its own eligibility criteria and latitude in assistance determination, and there is no standardization or audits, it is hard to tell how rampant this problem is. This can inadvertently remove the co-pay pressure on the patient and make them indifferent to even high treatment costs.
No incentive for generic manufacturers to contribute: Given their price points, generic manufacturers have no incentive to contribute to the foundations. For every branded manufacturer they end up subsidizing, the needed sales of their own generic drug will be impossibly high.